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Crocs Calls Out Shanghai Lockdown Impact as it Posts Strong Q1 Earnings and Revenue Beat

Crocs just posted better-than-expected results for the first quarter, despite challenges abroad in China, a major region of production and e-commerce distribution for the brand.

Overall, revenues for Q1 grew 43.5% to $660.1 million, beating predictions from analysts surveyed by Yahoo Finance. Net income came in at $72.8 million, with earnings per share of $1.19. The average estimate of analysts surveyed by Yahoo was $1.55 per share. 

Crocs also reported positive results for Hey Dude since it acquired the brand on February 17. In that six-week period until March 31, 2022, Hey Dude brand revenues were $114.9 million.

Despite the strong results, Crocs executives noted current challenges for the Crocs and Hey Dude brands in China, as the country continues to employ a strict “zero-Covid” policy to combat outbreaks of COVID-19. This strategy has led to extended strict lockdowns in various regions, most recently in Shanghai.

Since most of Hey Dude’s production takes place in China, the brand has been impacted by factory closures in the region over the last few months. However, Crocs executives noted that there has not been a significant impact on shipping and logistics from this region, as the brand integrates into Crocs’ existing logistics operation.

“That’s been one of the nice benefits of integrating Hey Dude into Crocs,” said CEO Andrew Rees in a call with investors. “We obviously have a far more robust logistics operation. So we’re able to step in and really help manage the logistics. So I’d say all of those factors to date are incorporated in our guidance.”

The Crocs brand itself recently shifted production from Vietnam to China, Indonesia and Bosnia to mitigate supply chain issues.

EVP and CFO Anne Mehlman also noted that lockdowns in Shanghai could have a material impact on Crocs’ e-commerce business that ships out of that city. This headwind has been incorporated into the company’s Q2 guidance.

While there is some footwear production based in Shanghai, the city for the most part is not a major center for footwear production. However, some major footwear brands, such as Columbia Sportswear Company and Nike, have headquarters there. What’s more, the normally bustling city is also an important region for retail sales from tourists and locals in brand-operated stores.

“Shanghai is the largest city in the world, and when you shut it down there is no retail operating,” said Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA). “The Nike store, the Skechers store, the Adidas store — they’re not open. So, when you think about sales in these marketplaces, there’s going to be an impact.”

Despite the concerns, Crocs raised its full year outlook and expects revenue to hit approximately $3.5 billion, with adjusted diluted earnings per share between $10.05 and $10.65.

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